09-22-2003, 09:49 PM
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(article-body">http://online.wsj.com/article/0,,SB10638249388933700-search,00.html?collection=wsjie/30day&vql_string=india<in>(article-body)
THE WALL STREET JOURNAL ONLINE, SEPTEMBER 22, 2003
DRIVING FORCEIndia has more than two million engineers -- and the beginnings of a vibrant manufacturing sector
By HENNY SENDER
Staff Reporter of THE WALL STREET JOURNAL
Can India become a hot spot for auto-parts manufacturing?
Until recently that idea seemed far-fetched. After all, the country isn't known for either world-class manufacturing know-how or cost competitiveness. But one company, Bharat Forge Ltd., is starting to change that.
The auto-parts maker is jump-starting its operations -- and the country's auto-parts industry -- with a novel approach for India : applying the brainpower and skill of the country's more than two million engineers to the manufacturing sector.
By improving the quality of its parts through better design while restructuring its finances to keep labor costs in check, Bharat Forge is able to go after global customers who would not have taken it seriously just a few years ago. It's fast becoming a supplier to auto makers like Ford Motor Co., General Motors Corp. and Toyota Motor Corp., which have to cut their own expenses amid an increasingly competitive market by obtaining cheaper parts abroad.
Looking to Exports
"In the early 1990s, we decided to embark on an extensive modernization program," says Baba Kalyani, chairman and managing director of Bharat Forge. "We wanted domestic leadership. And then in the late '90s, we started to implement the next part of our strategy, which was to take global leadership."
Bharat Forge "stands out as an example of restructuring," says Ashish Gupta, an analyst with CLSA Asia-Pacific Markets in Bombay. "They are simultaneously improving the range and the quality of their products and cutting costs to improve the economics of their business."
Bharat Forge, located outside Pune, a city about three hours from Bombay, was established as an auto-parts maker in 1961 by the Kalyani family. But like many other family-run Indian companies, it has often lacked focus, diversifying into seemingly unrelated operations. In 1993, for instance, it established a financial-services division. It also had an investments division and a windmill operation.
But management -- now the younger generation of family members armed with business degrees from American universities -- has cleaned up the company, says Mr. Gupta, noting that noncore businesses have been spun off into a separate company.
Bharat Forge also has restructured its finances, taking advantage of lower interest rates to repay and refinance its debt. For example, in the first quarter, helped by a drop in lending rates, the company's interest expense was 20% lower than a year earlier.
India's Strength
So with a focus back on auto parts, Bharat Forge has set out to modernize the way it does business, which has, in turn, allowed it to venture into markets abroad. Key to this approach has been making better use of India's abundance of skilled but low-cost engineers to improve products.
"It was all based on leveraging the high-quality human capital that is India's main competitive advantage," says Mr. Kalyani.
Bharat Forge has merged "blue-collar workers and our white-collar workers and [has] everyone working on the floor of the plant," says Mr. Kalyani. "We also put more high-quality [workers] on the shop floor." Having designers and production people work together has allowed the company to improve both the speed and the quality of production, he adds.
The strategy appears to be paying off.
In the fiscal year ended March 31, net income at Bharat Forge jumped 46% to 810 million rupees ($17 million). The majority of the increase came from exports, which surged 145% from a year earlier and accounted for 40% of total sales of 6.9 billion rupees. For the fiscal first quarter ended June 30, net income more than doubled to 263 million rupees, with 80% of the growth coming from exports, including an order for components from Germany's DaimlerChrysler AG. By contrast just four years ago, exports accounted for less than 7% of total production, CLSA's Mr. Gupta says.
Exports are growing for auto-parts manufacturers throughout India as more global car makers -- who are under huge competitive pressure and have to cut costs to stay competitive -- see the country as a place to outsource work as cheaply as, and in some cases more so than, say, China or Mexico. And with improved quality to boot. At Bharat Forge, labor costs -- at 7% or 8% of total expenses -- are a fraction of such costs in the West, according to CLSA.
This year, export orders for car parts are expected to total $1.7 billion and swell to $5 billion by 2005, according to CLSA. A large part will come from Bharat Forge and the rest from smaller companies like Sundaram Fasteners, which are trying to capitalize on the same trend as Bharat Forge.
Export Customers
Bharat Forge's two largest export customers are Dana Corp. of Toledo, Ohio, and Arvind Meritor Inc., based in Troy, Mich. Bharat Forge also sells directly to car makers including Ford, based in Dearborn, Mich.; Honda Motor Co. of Japan; and Renault SA of France.
Now, Bharat Forge is trying to diversify its export orders still more. It has even succeeded in penetrating the burgeoning Chinese market -- a huge feat given that China itself is a major source of cheap labor.
In the past year, the company has started supplying parts to both First Automotive Works and Second Automotive Works, the largest local car makers in China. While the orders are still small, about $15 million each annually, the Chinese automotive market is the fastest growing in the world, according to auto makers and industry analysts, which means China could soon become Bharat Forge's most important market.
Growth at Home
And, of course, there's the Indian market. Bharat Forge's domestic sales rose a respectable 21% in the latest quarter. That was helped by the growing wealth of India's middle class -- which is buying more cars -- and a government that's finally doing something about the country's poor infrastructure, especially its roads. For example, the government is expanding to four lanes the two-lane highway linking India's four major cities. That means road transportation both for freight and for personal travel is expected to swell, which is good for both local car makers and their suppliers, such as Bharat Forge.
Less than 2% of the Indian population now uses cars for travel, according to CLSA, while the global average is 80%. That shows just how large the potential is.
"The Indian market is still small," says Mr. Kalyani. "But when it really takes off, we will be ready."
-- Mr. Sender is a staff reporter in The Wall Street Journal's New York bureau.
Write to Henny Sender at henny.sender@wsj.com
Updated September 22, 2003
(article-body">http://online.wsj.com/article/0,,SB10638249388933700-search,00.html?collection=wsjie/30day&vql_string=india<in>(article-body)
THE WALL STREET JOURNAL ONLINE, SEPTEMBER 22, 2003
DRIVING FORCEIndia has more than two million engineers -- and the beginnings of a vibrant manufacturing sector
By HENNY SENDER
Staff Reporter of THE WALL STREET JOURNAL
Can India become a hot spot for auto-parts manufacturing?
Until recently that idea seemed far-fetched. After all, the country isn't known for either world-class manufacturing know-how or cost competitiveness. But one company, Bharat Forge Ltd., is starting to change that.
The auto-parts maker is jump-starting its operations -- and the country's auto-parts industry -- with a novel approach for India : applying the brainpower and skill of the country's more than two million engineers to the manufacturing sector.
By improving the quality of its parts through better design while restructuring its finances to keep labor costs in check, Bharat Forge is able to go after global customers who would not have taken it seriously just a few years ago. It's fast becoming a supplier to auto makers like Ford Motor Co., General Motors Corp. and Toyota Motor Corp., which have to cut their own expenses amid an increasingly competitive market by obtaining cheaper parts abroad.
Looking to Exports
"In the early 1990s, we decided to embark on an extensive modernization program," says Baba Kalyani, chairman and managing director of Bharat Forge. "We wanted domestic leadership. And then in the late '90s, we started to implement the next part of our strategy, which was to take global leadership."
Bharat Forge "stands out as an example of restructuring," says Ashish Gupta, an analyst with CLSA Asia-Pacific Markets in Bombay. "They are simultaneously improving the range and the quality of their products and cutting costs to improve the economics of their business."
Bharat Forge, located outside Pune, a city about three hours from Bombay, was established as an auto-parts maker in 1961 by the Kalyani family. But like many other family-run Indian companies, it has often lacked focus, diversifying into seemingly unrelated operations. In 1993, for instance, it established a financial-services division. It also had an investments division and a windmill operation.
But management -- now the younger generation of family members armed with business degrees from American universities -- has cleaned up the company, says Mr. Gupta, noting that noncore businesses have been spun off into a separate company.
Bharat Forge also has restructured its finances, taking advantage of lower interest rates to repay and refinance its debt. For example, in the first quarter, helped by a drop in lending rates, the company's interest expense was 20% lower than a year earlier.
India's Strength
So with a focus back on auto parts, Bharat Forge has set out to modernize the way it does business, which has, in turn, allowed it to venture into markets abroad. Key to this approach has been making better use of India's abundance of skilled but low-cost engineers to improve products.
"It was all based on leveraging the high-quality human capital that is India's main competitive advantage," says Mr. Kalyani.
Bharat Forge has merged "blue-collar workers and our white-collar workers and [has] everyone working on the floor of the plant," says Mr. Kalyani. "We also put more high-quality [workers] on the shop floor." Having designers and production people work together has allowed the company to improve both the speed and the quality of production, he adds.
The strategy appears to be paying off.
In the fiscal year ended March 31, net income at Bharat Forge jumped 46% to 810 million rupees ($17 million). The majority of the increase came from exports, which surged 145% from a year earlier and accounted for 40% of total sales of 6.9 billion rupees. For the fiscal first quarter ended June 30, net income more than doubled to 263 million rupees, with 80% of the growth coming from exports, including an order for components from Germany's DaimlerChrysler AG. By contrast just four years ago, exports accounted for less than 7% of total production, CLSA's Mr. Gupta says.
Exports are growing for auto-parts manufacturers throughout India as more global car makers -- who are under huge competitive pressure and have to cut costs to stay competitive -- see the country as a place to outsource work as cheaply as, and in some cases more so than, say, China or Mexico. And with improved quality to boot. At Bharat Forge, labor costs -- at 7% or 8% of total expenses -- are a fraction of such costs in the West, according to CLSA.
This year, export orders for car parts are expected to total $1.7 billion and swell to $5 billion by 2005, according to CLSA. A large part will come from Bharat Forge and the rest from smaller companies like Sundaram Fasteners, which are trying to capitalize on the same trend as Bharat Forge.
Export Customers
Bharat Forge's two largest export customers are Dana Corp. of Toledo, Ohio, and Arvind Meritor Inc., based in Troy, Mich. Bharat Forge also sells directly to car makers including Ford, based in Dearborn, Mich.; Honda Motor Co. of Japan; and Renault SA of France.
Now, Bharat Forge is trying to diversify its export orders still more. It has even succeeded in penetrating the burgeoning Chinese market -- a huge feat given that China itself is a major source of cheap labor.
In the past year, the company has started supplying parts to both First Automotive Works and Second Automotive Works, the largest local car makers in China. While the orders are still small, about $15 million each annually, the Chinese automotive market is the fastest growing in the world, according to auto makers and industry analysts, which means China could soon become Bharat Forge's most important market.
Growth at Home
And, of course, there's the Indian market. Bharat Forge's domestic sales rose a respectable 21% in the latest quarter. That was helped by the growing wealth of India's middle class -- which is buying more cars -- and a government that's finally doing something about the country's poor infrastructure, especially its roads. For example, the government is expanding to four lanes the two-lane highway linking India's four major cities. That means road transportation both for freight and for personal travel is expected to swell, which is good for both local car makers and their suppliers, such as Bharat Forge.
Less than 2% of the Indian population now uses cars for travel, according to CLSA, while the global average is 80%. That shows just how large the potential is.
"The Indian market is still small," says Mr. Kalyani. "But when it really takes off, we will be ready."
-- Mr. Sender is a staff reporter in The Wall Street Journal's New York bureau.
Write to Henny Sender at henny.sender@wsj.com
Updated September 22, 2003